How the G20 Can Build on the World Economy’s Recent Resilience

IMF Blog, February 26, 2024

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Global growth is expected to reach 3.1 percent this year.
Inflation is falling and job markets are holding up, creating an opportunity to shift focus from firefighting to a medium-term agenda that supports strong, sustainable, balanced, and inclusive growth.
Medium-term growth projections have declined to the lowest in decades.
Geoeconomic fragmentation is deepening as countries shift trade and capital flows.
Climate risks are increasing and already affecting economic performance, from agricultural productivity to the reliability of transportation and the availability and cost of insurance.
Slowing growth prospects are making convergence with advanced economies more distant for emerging-market and developing economies.
Brazil’s G20 agenda highlights inclusion, sustainability, global governance, and eradicating poverty and hunger.

Findings:

Central bankers should focus on finishing the job of bringing inflation back to target.
Core inflation remains elevated in many countries, and upside risks to inflation remain.

Policy guidance:

Policymakers must carefully track underlying inflation developments and avoid easing too soon or too fast.
Where inflation is clearly moving toward target, countries should ensure that interest rates are not kept high for too long.
Brazil’s Central Bank is cited as an example: it was among the first to raise its policy rate during the pandemic and then loosen policy as inflation fell back toward its target range.

Findings:

With inflation cooling and economies better placed to absorb a tighter fiscal stance, there is an opportunity to rebuild buffers against future shocks, curb the rise of public debt, and create space for new spending priorities.
Higher interest rates and debt-servicing costs are straining budgets, leaving less room for essential services and investment.

Policy guidance:

Fiscal tightening should proceed at a carefully calibrated pace and be grounded in credible medium-term fiscal plans.
Measures should minimize the impact on poor and vulnerable households while protecting priority investments.
Countries should continue raising revenue and weeding out inefficiencies—broadening the tax base, closing loopholes, and improving tax administration.
Aim to build more inclusive and transparent tax systems and ensure the international tax architecture takes into account the interests of developing countries.

International initiatives and governance:

The G20 has asked the IMF to launch a joint initiative with the World Bank to help countries boost domestic-resource mobilization.
Work continues under the Global Sovereign Debt Roundtable to develop procedures to speed debt restructurings and make them more predictable.
While progress has been made under the G20 Common Framework, faster improvements to the global debt-restructuring architecture may be required.

Findings:

Policymakers urgently need to address drivers of medium-term growth alongside monetary and fiscal measures.
Many countries still have opportunities to ease binding constraints to economic activity.
Emerging-market economies can gain productivity from reforms in governance, business regulation, and external sector policies.
Structural forces such as AI and the climate economy will define coming decades; AI can lift productivity and improve growth prospects.

Climate and transition considerations:

The new climate economy will bring jobs, innovation, and investment for some regions; it will pose challenges for those heavily reliant on fossil fuels.

Policy guidance:

Policies to make polluters pay—such as carbon pricing—can incentivize shifts to low-carbon investments and consumption.
IMF research indicates that countries that take action on climate tend to stimulate green innovation and attract inflows of low-carbon technology and investment.
Taxing the most polluting forms of international transportation could raise revenues to fight climate change, hunger and support the most vulnerable.
Many vulnerable countries will need external support—financial and technical—to realize their potential.

Findings:

Recent military conflicts have increased polarization and are fragmenting the global economy; around 3,000 trade-restricting measures were imposed in 2023, nearly three times the number in 2019.
Since the pandemic, the IMF has deployed $354 billion in financing to 97 countries, including 57 low-income countries.

Governance and capacity-building actions:

Shareholders stepped up to meet fundraising targets for the Poverty Reduction and Growth Trust, which provides interest-free loans to low-income countries.
Shareholders agreed to increase IMF permanent quota resources by 50 percent.

Policy guidance and next steps:

G20 countries can lead by quickly ratifying the quota increase to maintain IMF lending capacity and reduce reliance on borrowed resources.
The IMF is developing possible approaches to realign quota shares, including through a new quota formula, while protecting the voices of the poorest members.
A third chair for Sub-Saharan Africa on the IMF Executive Board will be elected at this year’s Annual Meetings; this complements the African Union’s new status as a permanent member of the G20.
Global cooperation will be essential to manage geoeconomic fragmentation, reinvigorate trade, maximize AI’s potential without widening inequality, prevent bottlenecks on debt, and respond to climate change.

Finish the job on inflation: track underlying developments and avoid easing too soon or too fast; ease policy where inflation is clearly moving toward target.
Rebuild fiscal buffers: pursue carefully calibrated fiscal tightening grounded in credible medium-term plans while protecting the poor and priority investments.
Boost domestic-resource mobilization: broaden tax bases, close loopholes, and improve tax administration; build inclusive and transparent tax systems.
Strengthen debt-restructuring architecture: speed and predictability through Global Sovereign Debt Roundtable work and further improvements beyond the G20 Common Framework.
Pursue structural reforms to lift medium-term growth: governance, business regulation, external sector policies, and policies to harness AI and the climate economy.
Advance international cooperation: ratify IMF quota increases, realign quota shares fairly, and reinforce the global financial safety net with the IMF at its core.

Kristalina Georgieva, February 26, 2024 — IMF blog post